Question

Q1 Which of the following is a key determinant of the price elasticity of supply?

a) the availability of substitutes in production

b) the slope of the supply curve

c) the time it takes to change output in response to a change in price

d)the available technology

Q2 Suppose when the price of jean jackets increased by 10 percent, the quantity supplied increased by 16 percent. Based on this information the price elasticity of supply of jean jackets is

A) 0.625

B) 1.6%

C) 6%

D) 1.6

Q3 According to a study of the U.S. demand for alcoholic beverages , the price elasticity of demand for beer is -0.30 . Which of the following could explain why the price elasticity of demand for beer is low ?

A)The price of beer is relatively low and for many people it is a habit forming product .

B)More and more people are switching to wine and cocktails rather than beer

C)Beer is an inferior alcoholic beverage

D). There are only a few major suppliers of beer .

Q4 The midpoint formula is used to measure the elasticity of demand between two points on a demand curve

A)in special cases when the percentage change in the quantity demanded is equal to the percentage change in price

B). when demand is elastic

C). to ensure that the elasticity has a negative value

D). to ensure that we have only one value of the price elasticity of demand between two points on a demand curve .

Q5 To calculate the price elasticity of demand we divide

A)the average price by the average quantity demanded.

B)Othe percentage change in quantity demanded by the percentage change in price.

C)rise by the run.

D)NO the percentage change in price by the percentage change in quantity demanded.

Q6 Which of the following statements about the price elasticity of demand along a downward - sloping linear demand curve is true ?

A)It is unit elastic throughout the demand curve .

B)It is perfectly elastic at very high prices and perfectly inelastic at very low prices

C)It is inelastic at high prices and elastic at low prices

D)It is elastic at high prices and inelastic at low prices

Answer 1

Q1 Which of the following is a key determinant of the price elasticity of supply?

- Ans: b) the slope of the supply curve.

Because, elasticity of supply =% change in Qs / % change in P = (dQs/dP)(P/Qs), where (dQs/dP) represents the slope of the supply curve. The availability of substitutes in production most likely to affect elasticity of demand. Elasticity is a static concept measured at a particular point of time and hence time dynamics does not play any role in its magnitude, though over the time it may change.

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Q2 Change in price = 10% or 0.1 and change in Qs = 16% or 0.16. Hence, elasticity of supply =% change in Qs / % change in P = 0.16/0.1 = 1.6. Further, the elasticity is free from unit and hence, its 1.6 but not 1.6%

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Q3 According to a study of the U.S. demand for alcoholic beverages , the price elasticity of demand for beer is -0.30 . Which of the following could explain why the price elasticity of demand for beer is low ?

Ans: (A)The price of beer is relatively low and for many people it is a habit forming product .

A low elasticity means that change in quantity is less proportionate as compared to change in price. In other words, when price increase by 1%, quantity decreases by less than 1%. It may happen when the price of a product is too lo and it is a habit forming products. On the other hand, for a highly elastic product, if price increase for beer, the demand may shift to substitutes. The last factor is a determinant of elasticity of supply, but not elasticity of demand.

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Q4 The midpoint formula is used to measure the elasticity of demand between two points on a demand curve

Answer: (D) to ensure that we have only one value of the price elasticity of demand between two points on a demand curve .

The midpoint formula is an alternative to point method of elasticity. When the changes in price and quantity are small, it makes sense to use point elastictity estimate. However, the change in price and quantity are not small, then it might be useful to use mid-point estimate which represents the elasticity for the range of price and quantity.

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Q5 To calculate the price elasticity of demand we divide percentage change in quantity demanded by the percentage change in price, i.e., it is calculated as % change in Qd / % change in P

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Q6 Which of the following statements about the price elasticity of demand along a downward - sloping linear demand curve is true ?

Ans: (D) It is elastic at high prices and inelastic at low prices

Please note that at the mid point, |elasticity| = 1, above mid point, |elasticity| > 1 (elastic) and below mid-point, |elasticity| < 1 (inelastic)

In case of perfect elastic demand curve, the line is horizontal (not downward sloping). Similarly, in case of perfect inelastic demand curve, the line is vertical (not downward sloping).